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Corporate Crimes
Federal Prosecution of
Business Organizations[1]
I. Charging a Corporation: General
A. General Department of Justice Principle: Corporations should not be treated
leniently because of their artificial nature nor should they be subject to
harsher treatment. Vigorous enforcement of the criminal laws against corporate
wrongdoers, where appropriate results in great benefits for law enforcement
and the public, particularly in the area of white collar crime. Indicting corporations
for wrongdoing enables the government to address and be a force for positive
change of corporate culture, alter corporate behavior, and prevent, discover,
and punish white collar crime.
B. Comment: In all cases involving corporate wrongdoing, prosecutors should consider the factors discussed herein. First and foremost, prosecutors should be aware of the important public benefits that may flow from indicting a corporation in appropriate cases. For instance, corporations are likely to take immediate remedial steps when one is indicted for criminal conduct that is pervasive throughout a particular industry, and thus an indictment often provides a unique opportunity for deterrence on a massive scale. In addition, a corporate indictment may result in specific deterrence by changing the culture of the indicted corporation and the behavior of its employees. Finally, certain crimes that carry with them a substantial risk of great public harm, e.g., environmental crimes or financial frauds, are by their nature most likely to be committed by businesses, and there may, therefore, be a substantial federal interest in indicting the corporation.
Charging a corporation, however, does not mean that individual directors, officers, employees, or shareholders should not also be charged. Prosecution of a corporation is not a substitute for the prosecution of criminally culpable individuals within or without the corporation. Because a corporation can act only through individuals, imposition of individual criminal liability may provide the strongest deterrent against future corporate wrongdoing. Only rarely should provable individual culpability not be pursued, even in the face of offers of corporate guilty pleas. Corporations are "legal persons," capable of suing and being sued, and capable of committing crimes. Under the doctrine of respondeat superior, a corporation may be held criminally liable for the illegal acts of its directors, officers, employees, and agents. To hold a corporation liable for these actions, the government must establish that the corporate agent's actions (i) were within the scope of his duties and (ii) were intended, at least in part, to benefit the corporation. In all cases involving wrongdoing by corporate agents, prosecutors should consider the corporation, as well as the responsible individuals, as potential criminal targets.
Agents, however, may act for mixed reasons -- both for self-aggrandizement (both direct and indirect) and for the benefit of the corporation, and a corporation may be held liable as long as one motivation of its agent is to benefit the corporation. In United States v. Automated Medical Laboratories, 770 F.2d 399 (4th Cir. 1985), the court affirmed the corporation's conviction for the actions of a subsidiary's employee despite its claim that the employee was acting for his own benefit, namely his "ambitious nature and his desire to ascend the corporate ladder." The court stated, "Partucci was clearly acting in part to benefit AML since his advancement within the corporation depended on AML's well-being and its lack of difficulties with the FDA." Similarly, in United States v. Cincotta, 689 F.2d 238, 241-42 (1st Cir. 1982), the court held, "criminal liability may be imposed on the corporation only where the agent is acting within the scope of his employment. That, in turn, requires that the agent be performing acts of the kind which he is authorized to perform, and those acts must be motivated -- at least in part -- by an intent to benefit the corporation." Applying this test, the court upheld the corporation's conviction, notwithstanding the substantial personal benefit reaped by its miscreant agents, because the fraudulent scheme required money to pass through the corporation's treasury and the fraudulently obtained goods were resold to the corporation's customers in the corporation's name. As the court concluded, "Mystic--not the individual defendants--was making money by selling oil that it had not paid for."
Moreover, the corporation need not even necessarily profit from its agent's actions for it to be held liable. In Automated Medical Laboratories, the Fourth Circuit stated:
[B]enefit is not a "touchstone of criminal corporate liability; benefit
at best is an evidential, not an operative, fact." Thus, whether the agent's
actions ultimately redounded to the benefit of the corporation is less significant
than whether the agent acted with the intent to benefit the corporation. The
basic purpose of requiring that an agent have acted with the intent to benefit
the corporation, however, is to insulate the corporation from criminal liability
for actions of its agents which be inimical to the interests of the corporation
or which may have been undertaken solely to advance the interests of that agent
or of a party other than the corporation. 770 F.2d at 407 (emphasis added;
quoting Old Monastery Co. v. United States, 147 F.2d 905, 908 (4th Cir.), cert.
denied, 326 U.S. 734 (1945)).
II. Charging a Corporation: Factors to Be Considered
A. General Principle: Generally, prosecutors should apply the same factors
in determining whether to charge a corporation as they do with respect to
individuals. See USAM § 9-27.220, et seq. Thus, the prosecutor should
weigh all of the factors normally considered in the sound exercise of prosecutorial
judgment: the sufficiency of the evidence; the likelihood of success at trial,;
the probable deterrent, rehabilitative, and other consequences of conviction;
and the adequacy of noncriminal approaches. See id. However, due to the nature
of the corporate "person," some additional factors are present.
In conducting an investigation, determining whether to bring charges, and
negotiating plea agreements, prosecutors should consider the following factors
in reaching a decision as to the proper treatment of a corporate target:
1. the nature and seriousness of the offense, including the risk of harm to
the public, and applicable policies and priorities, if any, governing the prosecution
of corporations for particular categories of crime (see section III, infra);
2. the pervasiveness of wrongdoing within the corporation, including the complicity in, or condonation of, the wrongdoing by corporate management (see section IV, infra);
3. the corporation's history of similar conduct, including prior criminal, civil, and regulatory enforcement actions against it (see section V, infra);
4. the corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents, including, if necessary, the waiver of corporate attorney-client and work product protection (see section VI, infra);
5. the existence and adequacy of the corporation's compliance program (see section VII, infra);
6. the corporation's remedial actions, including any efforts to implement an effective corporate compliance program or to improve an existing one, to replace responsible management, to discipline or terminate wrongdoers, to pay restitution, and to cooperate with the relevant government agencies (see section VIII, infra);
7. collateral consequences, including disproportionate harm to shareholders, pension holders and employees not proven personally culpable and impact on the public arising from the prosecution (see section IX, infra); and
8. the adequacy of the prosecution of individuals responsible for the corporation's malfeasance;
9. the adequacy of remedies such as civil or regulatory enforcement actions (see section X, infra).
B. Comment: As with the factors relevant to charging natural persons, the foregoing factors are intended to provide guidance rather than to mandate a particular result. The factors listed in this section are intended to be illustrative of those that should be considered and not a complete or exhaustive list. Some or all of these factors may or may not apply to specific cases, and in some cases one factor may override all others. The nature and seriousness of the offense may be such as to warrant prosecution regardless of the other factors. Further, national law enforcement policies in various enforcement areas may require that more or less weight be given to certain of these factors than to others.
In making a decision to charge a corporation, the prosecutor generally has
wide latitude in determining when, whom, how, and even whether to prosecute
for violations of Federal criminal law. In exercising that discretion, prosecutors
should consider the following general statements of principles that summarize
appropriate considerations to be weighed and desirable practices to be followed
in discharging their prosecutorial responsibilities. In doing so, prosecutors
should ensure that the general purposes of the criminal law -- assurance of
warranted punishment, deterrence of further criminal conduct, protection of
the public from dangerous and fraudulent conduct, rehabilitation of offenders,
and restitution for victims and affected communities -- are adequately met,
taking into account the special nature of the corporate "person."
III. Charging a Corporation: Special Policy Concerns
A. General Principle: The nature and seriousness of the crime, including the
risk of harm to the public from the criminal conduct, are obviously primary
factors in determining whether to charge a corporation. In addition, corporate
conduct, particularly that of national and multi-national corporations, necessarily
intersects with federal economic, taxation, and criminal law enforcement
policies. In applying these principles, prosecutors must consider the practices
and policies of the appropriate Division of the Department, and must comply
with those policies to the extent required.
B. Comment: In determining whether to charge a corporation, prosecutors should
take into account federal law enforcement priorities as discussed above. See
USAM § 9-27-230. In addition, however, prosecutors must be aware of the
specific policy goals and incentive programs established by the respective
Divisions and regulatory agencies. Thus, whereas natural persons may be given
incremental degrees of credit (ranging from immunity to lesser charges to sentencing
considerations) for turning themselves in, making statements against their
penal interest, and cooperating in the government's investigation of their
own and others' wrongdoing, the same approach may not be appropriate in all
circumstances with respect to corporations. As an example, it is entirely proper
in many investigations for a prosecutor to consider the corporation's pre-indictment
conduct, e.g.,voluntary disclosure, cooperation, remediation or restitution,
in determining whether to seek an indictment. However, this would not necessarily
be appropriate in an antitrust investigation, in which antitrust violations,
by definition, go to the heart of the corporation's business and for which
the Antitrust Division has therefore established a firm policy, understood
in the business community, that credit should not be given at the charging
stage for a compliance program and that amnesty is available only to the first
corporation to make full disclosure to the government. As another example,
the Tax Division has a strong preference for prosecuting responsible individuals,
rather than entities, for corporate tax offenses. Thus, in determining whether
or not to charge a corporation, prosecutors should consult with the Criminal,
Antitrust, Tax, and Environmental and Natural Resources Divisions, if appropriate
or required.
IV. Charging a Corporation: Pervasiveness of Wrongdoing Within the Corporation
A. General Principle: A corporation can only act through natural persons, and
it is therefore held responsible for the acts of such persons fairly attributable
to it. Charging a corporation for even minor misconduct may be appropriate
where the wrongdoing was pervasive and was undertaken by a large number of
employees or by all the employees in a particular role within the corporation,
e.g., salesmen or procurement officers, or was condoned by upper management.
On the other hand, in certain limited circumstances, it may not be appropriate
to impose liability upon a corporation, particularly one with a compliance
program in place, under a strict respondeat superior theory for the single
isolated act of a rogue employee. There is, of course, a wide spectrum between
these two extremes, and a prosecutor should exercise sound discretion in
evaluating the pervasiveness of wrongdoing within a corporation.
B. Comment: Of these factors, the most important is the role of management. Although acts of even low-level employees may result in criminal liability, a corporation is directed by its management and management is responsible for a corporate culture in which criminal conduct is either discouraged or tacitly encouraged. As stated in commentary to the Sentencing Guidelines:
Pervasiveness [is] case specific and [will] depend on the number, and degree of responsibility, of individuals [with] substantial authority ... who participated in, condoned, or were willfully ignorant of the offense. Fewer individuals need to be involved for a finding of pervasiveness if those individuals exercised a relatively high degree of authority. Pervasiveness can occur either within an organization as a whole or within a unit of an organization.
USSG §8C2.5, comment. (n. 4).
V. Charging a Corporation: The Corporation's Past History
A. General Principle: Prosecutors may consider a corporation's history of similar
conduct, including prior criminal, civil, and regulatory enforcement actions
against it, in determining whether to bring criminal charges.
B. Comment: A corporation, like a natural person, is expected to learn from
its mistakes. A history of similar conduct may be probative of a corporate
culture that encouraged, or at least condoned, such conduct, regardless of
any compliance programs. Criminal prosecution of a corporation may be particularly
appropriate where the corporation previously had been subject to non-criminal
guidance, warnings, or sanctions, or previous criminal charges, and yet it
either had not taken adequate action to prevent future unlawful conduct or
had continued to engage in the conduct in spite of the warnings or enforcement
actions taken against it. In making this determination, the corporate structure
itself, e.g., subsidiaries or operating divisions, should be ignored, and enforcement
actions taken against the corporation or any of its divisions, subsidiaries,
and affiliates should be considered. See USSG § 8C2.5(c) & comment.
(n. 6).
VI. Charging a Corporation: Cooperation and Voluntary Disclosure
A. General Principle: In determining whether to charge a corporation, that
corporation's timely and voluntary disclosure of wrongdoing and its willingness
to cooperate with the government's investigation may be relevant factors.
In gauging the extent of the corporation's cooperation, the prosecutor may
consider the corporation's willingness to identify the culprits within the
corporation, including senior executives; to make witnesses available; to
disclose the complete results of its internal investigation; and to waive
attorney-client and work product protection. B. Comment: In investigating
wrongdoing by or within a corporation, a prosecutor is likely to encounter
several obstacles resulting from the nature of the corporation itself. It
will often be difficult to determine which individual took which action on
behalf of the corporation. Lines of authority and responsibility may be shared
among operating divisions or departments, and records and personnel may be
spread throughout the United States or even among several countries. Where
the criminal conduct continued over an extended period of time, the culpable
or knowledgeable personnel may have been promoted, transferred, or fired,
or they may have quit or retired. Accordingly, a corporation's cooperation
may be critical in identifying the culprits and locating relevant evidence.
In some circumstances, therefore, granting a corporation immunity or amnesty or pretrial diversion may be considered in the course of the government's investigation. In such circumstances, prosecutors should refer to the principles governing non-prosecution agreements generally. See USAM § 9-27.600-650. These principles permit a non prosecution agreement in exchange for cooperation when a corporation's "timely cooperation appears to be necessary to the public interest and other means of obtaining the desired cooperation are unavailable or would not be effective." Prosecutors should note that in the case of national or multi-national corporations, multi-district or global agreements may be necessary. Such agreements may only be entered into with the approval of each affected district or the appropriate Department official. See USAM §9-27.641.
In addition, the Department, in conjunction with regulatory agencies and other executive branch departments, encourages corporations, as part of their compliance programs, to conduct internal investigations and to disclose their findings to the appropriate authorities. Some agencies, such as the SEC and the EPA, as well as the Department's Environmental and Natural Resources Division, have formal voluntary disclosure programs in which self-reporting, coupled with remediation and additional criteria, may qualify the corporation for amnesty or reduced sanctions.[2] Even in the absence of a formal program, prosecutors may consider a corporation's timely and voluntary disclosure in evaluating the adequacy of the corporation's compliance program and its management's commitment to the compliance program. However, prosecution and economic policies specific to the industry or statute may require prosecution notwithstanding a corporation's willingness to cooperate. For example, the Antitrust Division offers amnesty only to the first corporation to agree to cooperate. This creates a strong incentive for corporations participating in anti-competitive conduct to be the first to cooperate. In addition, amnesty, immunity, or reduced sanctions may not be appropriate where the corporation's business is permeated with fraud or other crimes.
One factor the prosecutor may weigh in assessing the adequacy of a corporation's cooperation is the completeness of its disclosure including, if necessary, a waiver of the attorney-client and work product protections, both with respect to its internal investigation and with respect to communications between specific officers, directors and employees and counsel. Such waivers permit the government to obtain statements of possible witnesses, subjects, and targets, without having to negotiate individual cooperation or immunity agreements. In addition, they are often critical in enabling the government to evaluate the completeness of a corporation's voluntary disclosure and cooperation. Prosecutors may, therefore, request a waiver in appropriate circumstances.[3] The Department does not, however, consider waiver of a corporation's attorney-client and work product protection an absolute requirement, and prosecutors should consider the willingness of a corporation to waive such protection when necessary to provide timely and complete information as one factor in evaluating the corporation's cooperation.
Another factor to be weighed by the prosecutor is whether the corporation appears to be protecting its culpable employees and agents. Thus, while cases will differ depending on the circumstances, a corporation's promise of support to culpable employees and agents, either through the advancing of attorneys fees,[4] through retaining the employees without sanction for their misconduct, or through providing information to the employees about the government's investigation pursuant to a joint defense agreement, may be considered by the prosecutor in weighing the extent and value of a corporation's cooperation. By the same token, the prosecutor should be wary of attempts to shield corporate officers and employees from liability by a willingness of the corporation to plead guilty.
Another factor to be weighed by the prosecutor is whether the corporation,
while purporting to cooperate, has engaged in conduct that impedes the investigation
(whether or not rising to the level of criminal obstruction). Examples of such
conduct include: overly broad assertions of corporate representation of employees
or former employees; inappropriate directions to employees or their counsel,
such as directions not to cooperate openly and fully with the investigation
including, for example, the direction to decline to be interviewed; making
presentations or submissions that contain misleading assertions or omissions;
incomplete or delayed production of records; and failure to promptly disclose
illegal conduct known to the corporation. Finally, a corporation's offer of
cooperation does not automatically entitle it to immunity from prosecution.
A corporation should not be able to escape liability merely by offering up
its directors, officers, employees, or agents as in lieu of its own prosecution.
Thus, a corporation's willingness to cooperate is merely one relevant factor,
that needs to be considered in conjunction with the other factors, particularly
those relating to the corporation's past history and the role of management
in the wrongdoing.
VII. Charging a Corporation: Corporate Compliance Programs
A. General Principle: Compliance programs are established by corporate management
to prevent and to detect misconduct and to ensure that corporate activities
are conducted in accordance with all applicable criminal and civil laws,
regulations, and rules. The Department encourages such corporate self-policing,
including voluntary disclosures to the government of any problems that a
corporation discovers on its own. However, the existence of a compliance
program is not sufficient, in and of itself, to justify not charging a corporation
for criminal conduct undertaken by its officers, directors, employees, or
agents. Indeed, the commission of such crimes in the face of a compliance
program may suggest that the corporate management is not adequately enforcing
its program. In addition, the nature of some crimes, e.g., antitrust violations,
may be such that national law enforcement policies mandate prosecutions of
corporations notwithstanding the existence of a compliance program.
B. Comment: A corporate compliance program, even one specifically prohibiting the very conduct in question, does not absolve the corporation from criminal liability under the doctrine of respondeat superior. See United States v. Basic Construction Co., 711 F.2d 570 (4th Cir. 1983) ("a corporation may be held criminally responsible for antitrust violations committed by its employees if they were acting within the scope of their authority, or apparent authority, and for the benefit of the corporation, even if... such acts were against corporate policy or express instructions."). In United States v. Hilton Hotels Corp., 467 F.2d 1000 (9th Cir. 1972), cert. denied, 409 U.S. 1125 (1973), the Ninth Circuit affirmed antitrust liability based upon a purchasing agent for a single hotel threatening a single supplier with a boycott unless it paid dues to a local marketing association, even though the agent's actions were contrary to corporate policy and directly against express instructions from his superiors. The court reasoned that Congress, in enacting the Sherman Antitrust Act, "intended to impose liability upon business entities for the acts of those to whom they choose to delegate the conduct of their affairs, thus stimulating a maximum effort by owners and managers to assure adherence by such agents to the requirements of the Act."[5] It concluded that "general policy statements" and even direct instructions from the agent's superiors were not sufficient; "Appellant could not gain exculpation by issuing general instructions without undertaking to enforce those instructions by means commensurate with the obvious risks." See also United States v. Beusch, 596 F.2d 871, 878 (9th Cir. 1979) ("[A] corporation may be liable for the acts of its employees done contrary to express instructions and policies, but ... the existence of such instructions and policies may be considered in determining whether the employee in fact acted to benefit the corporation."); United States v. American Radiator & Standard Sanitary Corp., 433 F.2d 174 (3rd Cir. 1970) (affirming conviction of corporation based upon its officer's participation in price-fixing scheme, despite corporation's defense that officer's conduct violated its "rigid anti-fraternization policy" against any socialization (and exchange of price information) with its competitors; "When the act of the agent is within the scope of his employment or his apparent authority, the corporation is held legally responsible for it, although what he did may be contrary to his actual instructions and may be unlawful.").
While the Department recognizes that no compliance program can ever prevent all criminal activity by a corporation's employees, the critical factors in evaluating any program are whether the program is adequately designed for maximum effectiveness in preventing and detecting wrongdoing by employees and whether corporate management is enforcing the program or is tacitly encouraging or pressuring employees to engage in misconduct to achieve business objectives. The Department has no formal guidelines for corporate compliance programs. The fundamental questions any prosecutor should ask are: "Is the corporation's compliance program well designed?" and "Does the corporation's compliance program work?" In answering these questions, the prosecutor should consider the comprehensiveness of the compliance program; the extent and pervasiveness of the criminal conduct; the number and level of the corporate employees involved; the seriousness, duration, and frequency of the misconduct; and any remedial actions taken by the corporation, including restitution, disciplinary action, and revisions to corporate compliance programs.[6] Prosecutors should also consider the promptness of any disclosure of wrongdoing to the government and the corporation's cooperation in the government's investigation. In evaluating compliance programs, prosecutors may consider whether the corporation has established corporate governance mechanisms that can effectively detect and prevent misconduct. For example, do the corporation's directors exercise independent review over proposed corporate actions rather than unquestioningly ratifying officers' recommendations; are the directors provided with information sufficient to enable the exercise of independent judgment, are internal audit functions conducted at a level sufficient to ensure their independence and accuracy and have the directors established an information and reporting system in the organization reasonable designed to provide management and the board of directors with timely and accurate information sufficient to allow them to reach an informed decision regarding the organization's compliance with the law. In re: Caremark, 698 A.2d 959 (Del. Ct. Chan. 1996).
Prosecutors should therefore attempt to determine whether a corporation's compliance program is merely a "paper program" or whether it was designed and implemented in an effective manner. In addition, prosecutors should determine whether the corporation has provided for a staff sufficient to audit, document, analyze, and utilize the results of the corporation's compliance efforts. In addition, prosecutors should determine whether the corporation's employees are adequately informed about the compliance program and are convinced of the corporation's commitment to it. This will enable the prosecutor to make an informed decision as to whether the corporation has adopted and implemented a truly effective compliance program that, when consistent with other federal law enforcement policies, may result in a decision to charge only the corporation's employees and agents.
Compliance programs should be designed to detect the particular types of misconduct
most likely to occur in a particular corporation's line of business. Many corporations
operate in complex regulatory environments outside the normal experience of
criminal prosecutors. Accordingly, prosecutors should consult with relevant
federal and state agencies with the expertise to evaluate the adequacy of a
program's design and implementation. For instance, state and federal banking,
insurance, and medical boards, the Department of Defense, the Department of
Health and Human Services, the Environmental Protection Agency, and the Securities
and Exchange Commission have considerable experience with compliance programs
and can be very helpful to a prosecutor in evaluating such programs. In addition,
the Fraud Section of the Criminal Division, the Commercial Litigation Branch
of the Civil Division, and the Environmental Crimes Section of the Environment
and Natural Resources Division can assist U.S. Attorneys' Offices in finding
the appropriate agency office and in providing copies of compliance programs
that were developed in previous cases.
VIII. Charging a Corporation: Restitution and Remediation
A. General Principle: Although neither a corporation nor an individual target
may avoid prosecution merely by paying a sum of money, a prosecutor may consider
the corporation's willingness to make restitution and steps already taken
to do so. A prosecutor may also consider other remedial actions, such as
implementing an effective corporate compliance program, improving an existing
compliance program, and disciplining wrongdoers, in determining whether to
charge the corporation.
B. Comment: In determining whether or not a corporation should be prosecuted, a prosecutor may consider whether meaningful remedial measures have been taken, including employee discipline and full restitution.[7 A corporation's response to misconduct says much about its willingness to ensure that such misconduct does not recur. Thus, corporations that fully recognize the seriousness of their misconduct and accept responsibility for it should be taking steps to implement the personnel, operational, and organizational changes necessary to establish an awareness among employees that criminal conduct will not be tolerated. Among the factors prosecutors should consider and weigh are whether the corporation appropriately disciplined the wrongdoers and disclosed information concerning their illegal conduct to the government.
Employee discipline is a difficult task for many corporations because of the human element involved and sometimes because of the seniority of the employees concerned. While corporations need to be fair to their employees, they must also be unequivocally committed, at all levels of the corporation, to the highest standards of legal and ethical behavior. Effective internal discipline can be a powerful deterrent against improper behavior by a corporation's employees. In evaluating a corporation's response to wrongdoing, prosecutors may evaluate the willingness of the corporation to discipline culpable employees of all ranks and the adequacy of the discipline imposed. The prosecutor should be satisfied that the corporation's focus is on the integrity and credibility of its remedial and disciplinary measures rather than on the protection of the wrongdoers.
In addition to employee discipline, two other factors used in evaluating a
corporation's remedial efforts are restitution and reform. As with natural
persons, the decision whether or not to prosecute should not depend upon the
target's ability to pay restitution. A corporation's efforts to pay restitution
even in advance of any court order is, however, evidence of its "acceptance
of responsibility" and, consistent with the practices and policies of
the appropriate Division of the Department entrusted with enforcing specific
criminal laws, may be considered in determining whether to bring criminal charges.
Similarly, although the inadequacy of a corporate compliance program is a factor
to consider when deciding whether to charge a corporation, that corporation's
quick recognition of the flaws in the program and its efforts to improve the
program are also factors to consider.
IX. Charging a Corporation: Collateral Consequences
A. General Principle: Prosecutors may consider the collateral consequences
of a corporate criminal conviction in determining whether to charge the corporation
with a criminal offense.
B. Comment: One of the factors in determining whether to charge a natural person or a corporation is whether the likely punishment is appropriate given the nature and seriousness of the crime. In the corporate context, prosecutors may take into account the possibly substantial consequences to a corporation's officers, directors, employees, and shareholders, many of whom may, depending on the size and nature (e.g., publicly vs. closely held) of the corporation and their role in its operations, have played no role in the criminal conduct, have been completely unaware of it, or have been wholly unable to prevent it. Prosecutors should also be aware of non-penal sanctions that may accompany a criminal charge, such as potential suspension or debarment from eligibility for government contracts or federal funded programs such as health care. Whether or not such non-penal sanctions are appropriate or required in a particular case is the responsibility of the relevant agency, a decision that will be made based on the applicable statutes, regulations, and policies.
Virtually every conviction of a corporation, like virtually every conviction of an individual, will have an impact on innocent third parties, and the mere existence of such an effect is not sufficient to preclude prosecution of the corporation. Therefore, in evaluating the severity of collateral consequences, various factors already discussed, such as the pervasiveness of the criminal conduct and the adequacy of the corporation's compliance programs, should be considered in determining the weight to be given to this factor. For instance, the balance may tip in favor of prosecuting corporations in situations where the scope of the misconduct in a case is widespread and sustained within a corporate division (or spread throughout pockets of the corporate organization). In such cases, the possible unfairness of visiting punishment for the corporation's crimes upon shareholders may be of much less concern where those shareholders have substantially profited, even unknowingly, from widespread or pervasive criminal activity. Similarly, where the top layers of the corporation's management or the shareholders of a closely-held corporation were engaged in or aware of the wrongdoing and the conduct at issue was accepted as a way of doing business for an extended period, debarment may be deemed not collateral, but a direct and entirely appropriate consequence of the corporation's wrongdoing.
The appropriateness of considering such collateral consequences and the weight
to be given them may depend on the special policy concerns discussed in section
III, supra.
X. Charging a Corporation: Non-Criminal Alternatives
A. General Principle: Although non-criminal alternatives to prosecution often
exist, prosecutors may consider whether such sanctions would adequately deter,
punish, and rehabilitate a corporation that has engaged in wrongful conduct.
In evaluating the adequacy of non-criminal alternatives to prosecution, e.g.,
civil or regulatory enforcement actions, the prosecutor may consider all
relevant factors, including:
1. the sanctions available under the alternative means of disposition;
2. the likelihood that an effective sanction will be imposed; and
3. the effect of non-criminal disposition on Federal law enforcement interests.
B. Comment: The primary goals of criminal law are deterrence, punishment,
and rehabilitation. Non-criminal sanctions may not be an appropriate response
to an egregious violation, a pattern of wrongdoing, or a history of non-criminal
sanctions without proper remediation. In other cases, however, these goals
may be satisfied without the necessity of instituting criminal proceedings.
In determining whether federal criminal charges are appropriate, the prosecutor
should consider the same factors (modified appropriately for the regulatory
context) considered when determining whether to leave prosecution of a natural
person to another jurisdiction or to seek non-criminal alternatives to prosecution.
These factors include: the strength of the regulatory authority's interest;
the regulatory authority's ability and willingness to take effective enforcement
action; the probable sanction if the regulatory authority's enforcement action
is upheld; and the effect of a non-criminal disposition on Federal law enforcement
interests. See USAM §§ 9-27.240, 9-27.250.
XI. Charging a Corporation: Selecting Charges
A. General Principle: Once a prosecutor has decided to charge a corporation,
the prosecutor should charge, or should recommend that the grand jury charge,
the most serious offense that is consistent with the nature of the defendant's
conduct and that is likely to result in a sustainable conviction.
B. Comment: Once the decision to charge is made, the same rules as govern
charging natural persons apply. These rules require "a faithful and honest
application of the Sentencing Guidelines" and an "individualized
assessment of the extent to which particular charges fit the specific circumstances
of the case, are consistent with the purposes of the Federal criminal code,
and maximize the impact of Federal resources on crime." See USAM § 9-27.300.
In making this determination, "it is appropriate that the attorney for
the government consider, inter alia, such factors as the sentencing guideline
range yielded by the charge, whether the penalty yielded by such sentencing
range ... is proportional to the seriousness of the defendant's conduct, and
whether the charge achieves such purposes of the criminal law as punishment,
protection of the public, specific and general deterrence, and rehabilitation." See
Attorney General's Memorandum, dated October 12, 1993.
XII. Plea Agreements with Corporations
A. General Principle: In negotiating plea agreements with corporations, prosecutors
should seek a plea to the most serious, readily provable offense charged.
In addition, the terms of the plea agreement should contain appropriate provisions
to ensure punishment, deterrence, rehabilitation, and compliance with the
plea agreement in the corporate context. Although special circumstances may
mandate a different conclusion, prosecutors generally should not agree to
accept a corporate guilty plea in exchange for non-prosecution or dismissal
of charges against individual officers and employees. B. Comment: Prosecutors
may enter into plea agreements with corporations for the same reasons and
under the same constraints as apply to plea agreements with natural persons.
See USAM §§ 9-27.400-500. This means, inter alia, that the corporation
should be required to plead guilty to the most serious, readily provable
offense charged. As is the case with individuals, the attorney making this
determination should do so "on the basis of an individualized assessment
of the extent to which particular charges fit the specific circumstances
of the case, are consistent with the purposes of the federal criminal code,
and maximize the impact of federal resources on crime. In making this determination,
the attorney for the government considers, inter alia, such factors as the
sentencing guideline range yielded by the charge, whether the penalty yielded
by such sentencing range ... is proportional to the seriousness of the defendant's
conduct, and whether the charge achieves such purposes of the criminal law
as punishment, protection of the public, specific and general deterrence,
and rehabilitation." See Attorney General's Memorandum, dated October
12, 1993. In addition, any negotiated departures from the Sentencing Guidelines
must be justifiable under the Guidelines and must be disclosed to the sentencing
court. A corporation should be made to realize that pleading guilty to criminal
charges constitutes an admission of guilt and not merely a resolution of
an inconvenient distraction from its business. As with natural persons, pleas
should be structured so that the corporation may not later "proclaim
lack of culpability or even complete innocence." See USAM §§ 9-27.420(b)(4),
9-27.440, 9-27.500. Thus, for instance, there should be placed upon the record
a sufficient factual basis for the plea to prevent later corporate assertions
of innocence.
A corporate plea agreement should also contain provisions that recognize the nature of the corporate "person" and ensure that the principles of punishment, deterrence, and rehabilitation are met. In the corporate context, punishment and deterrence are generally accomplished by substantial fines, mandatory restitution, and institution of appropriate compliance measures, including, if necessary, continued judicial oversight or the use of special masters. See USSG §§ 8B1.1, 8C2.1, et seq. In addition, where the corporation is a government contractor, permanent or temporary debarment may be appropriate. Where the corporation was engaged in government contracting fraud, a prosecutor may not negotiate away an agency's right to debar or to list the corporate defendant.
In negotiating a plea agreement, prosecutors should also consider the deterrent value of prosecutions of individuals within the corporation. Therefore, one factor that a prosecutor may consider in determining whether to enter into a plea agreement is whether the corporation is seeking immunity for its employees and officers or whether the corporation is willing to cooperate in the investigation of culpable individuals. Prosecutors should rarely negotiate away individual criminal liability in a corporate plea.
Rehabilitation, of course, requires that the corporation undertake to be law-abiding in the future. It is, therefore, appropriate to require the corporation, as a condition of probation, to implement a compliance program or to reform an existing one. As discussed above, prosecutors may consult with the appropriate state and federal agencies and components of the Justice Department to ensure that a proposed compliance program is adequate and meets industry standards and best practices. See section VII, supra.
In plea agreements in which the corporation agrees to cooperate, the prosecutor
should ensure that the cooperation is complete and truthful. To do so, the
prosecutor may request that the corporation waive attorney-client and work
product protection, make employees and agents available for debriefing, disclose
the results of its internal investigation, file appropriate certified financial
statements, agree to governmental or third-party audits, and take whatever
other steps are necessary to ensure that the full scope of the corporate wrongdoing
is disclosed and that the responsible culprits are identified and, if appropriate,
prosecuted. See generally section VIII, supra.
Footnotes:
1. While these guidelines refer to corporations, they apply to the consideration of the prosecution of all types of business organizations, including partnerships, sole proprietorships, government entities, and unincorporated associations.
2. In addition, the Sentencing Guidelines reward voluntary disclosure and cooperation with a reduction in the corporation's offense level. See USSG §8C2.5)g).
3. This waiver should ordinarily be limited to the factual internal investigation and any contemporaneous advice given to the corporation concerning the conduct at issue. Except in unusual circumstances, prosecutors should not seek a waiver with respect to communications and work product related to advice concerning the government's criminal investigation.
4. Some states require corporations to pay the legal fees of officers under investigation prior to a formal determination of their guilt. Obviously, a corporation's compliance with governing law should not be considered a failure to cooperate.
5. Although this case and Basic Construction are both antitrust cases, their reasoning applies to other criminal violations. In the Hilton case, for instance, the Ninth Circuit noted that Sherman Act violations are commercial offenses "usually motivated by a desire to enhance profits," thus, bringing the case within the normal rule that a "purpose to benefit the corporation is necessary to bring the agent's acts within the scope of his employment." 467 F.2d at 1006 & n4. In addition, in United States v. Automated Medical Laboratories, 770 F.2d 399, 406 n.5 (4th Cir. 1985), the Fourth Circuit stated "that Basic Construction states a generally applicable rule on corporate criminal liability despite the fact that it addresses violations of the antitrust laws."
6. For a detailed review of these and other factors concerning corporate compliance programs, see United States Sentencing Commission, GUIDELINES MANUAL, §8A1.2, comment. (n.3(k)) (Nov. 1997). See also USSG §8C2.5(f)
7. For example, the Antitrust Division's amnesty policy requires that "[w]here possible, the corporation [make] restitution to injured parties...."